External Storm, Internal Tense Calm. The global backdrop has become more challenging and has taken a toll on local assets, which were already showing signs of fatigue prior to the outbreak of conflict in the Middle East. In a world where currencies are depreciating against the U.S. dollar and interest rates are rising, the domestic front presents the opposite picture: the exchange rate remains stable while interest rates continue to decline. In this context, sovereign bonds deepened their losses in line with emerging market peers, and country risk climbed back above 620 basis points. The Merval index managed to hold up, supported by energy stocks benefiting from the surge in gold prices, while local currency bonds posted solid performance, driven by increased liquidity in the financial system. On the policy front, the government continues to maintain fiscal balance despite declining revenues, and the central bank is still purchasing foreign currency, albeit at a pace insufficient to rebuild international reserves. In terms of activity, although the final quarter of 2025 showed a rebound, the economy remains stagnant—an outcome now reflected in labor market indicators, with unemployment on the rise. The deterioration in employment, combined with wages continuing to lag inflation, is eroding economic agents’ expectations and will likely translate into lower government approval. Despite a more uncertain international environment and a more strained domestic front, the exchange rate remains firm and is gradually moving away from the upper bound of the band. However, two key risk factors dominate the near-term outlook: the persistent appreciation of the real exchange rate and the potential unwinding of carry trade positions amid continuously declining interest rates. The week ahead will be marked by the Treasury auction and the release of key economic data, including the EMAE, January wage data, and February’s balance of payments figures.

Economic Activity Rebounded. In 4Q25, GDP matched the previous quarter’s performance, expanding by 0.6% quarter-over-quarter (q/q) and standing 2.1% higher year-over-year (y/y) compared to 4Q24. On the demand side, exports led the expansion, rising 5% q/q and 11% y/y, outpacing imports, which grew 1.2% q/q and 10.1% y/y. Private consumption followed, increasing 1.7% q/q and 4.1% y/y, while public consumption declined by 1.0% q/q and 0.1% y/y, and investment contracted by 2.8% q/q and 2.1% y/y. On the supply side, financial intermediation (+17.2% y/y) and agriculture (+16.1% y/y) led growth, whereas manufacturing (-5.0%) and commerce (-2.2%) declined. For full-year 2025, GDP grew 4.4% y/y, driven by investment (+16.4% y/y) and private consumption (+7.9% y/y), while public consumption rose only marginally (+0.2% y/y). Net exports made a negative contribution, as imports increased 27% y/y compared to exports’ 7.6% y/y growth. On the supply side, all sectors except fishing expanded relative to 2024, with agriculture (+6.2% y/y), financial services (+24.7% y/y), and mining (+8% y/y) standing out. While these results exceeded expectations and helped avoid a recession, a broader view suggests that activity has lost momentum since February last year and remains highly uneven across sectors, with a widening gap between urban and primary activities.

Labor Market Deterioration. In 4Q25, the labor force participation rate stood at 48.6%, the employment rate declined to 45.0% (0.7 percentage points below 4Q24), and the unemployment rate rose to 7.5%, up from 6.4% in 4Q24 and 5.7% in 4Q23. This implies approximately 1.7 million unemployed individuals—around 400,000 more than at the end of 2023. Total employment remained roughly unchanged compared to two years ago, as losses in formal salaried employment (down 257,000 jobs relative to 4Q23, including 190,000 private and 70,000 public sector jobs) and informal employment (down 165,000) were offset by an increase in self-employment, which added 390,000 workers. Notably, this marks the first time since 2004 that unemployment has risen alongside GDP growth.

Fiscal Accounts Remain Anchored. The national government continues to uphold its fiscal anchor despite a persistent decline in revenues. In February, the National Public Sector recorded a balanced financial result and a primary surplus of 0.1% of GDP. Revenues fell 9% y/y in real terms—driven by a 13% decline in VAT (net of refunds) and a 40% drop in export duties—while primary spending contracted by a similar magnitude. Spending cuts were driven by sharp reductions in social programs (excluding AUH), public sector wages, subsidies, transfers to provinces, and public works, with only AUH registering an increase (+11% y/y). In the first two months of the year, the government accumulated a primary surplus of 0.4% of GDP. Including interest payments—which declined 10% y/y in real terms—the financial surplus reached 0.1% of GDP.

Trade Balance Improves. In February, the trade balance posted a surplus of USD 788 million, well above the USD 275 million recorded a year earlier. This improvement was driven by an 11.8% y/y decline in imports (with volumes down 15% but prices up 3.7%) and a 2.9% y/y decrease in exports (quantities down 7%, partially offset by a 4.4% increase in prices). Export performance was mixed: agricultural manufactures (-10% y/y) and energy (-27% y/y) declined, while primary products (+8% y/y) and industrial manufactures (+8.6% y/y) increased, the latter supported by gold and lithium exports. In the first two months of the year, the cumulative trade surplus reached USD 2.98 billion, compared to just USD 400 million in the same period of 2025.

Wholesale Prices and Construction Costs. Decelerate In February, the Wholesale Price Index (WPI) rose 1.0% month-over-month (m/m) and 25.6% y/y, slowing from 1.7% m/m in January, driven by domestic products (+1.3%) while imported goods declined (-2.7%). Meanwhile, the Construction Cost Index increased 1.9% m/m and 24.5% y/y.

Central Bank Steps Up FX Purchases. Over the past week, the central bank purchased USD 485 million, bringing the monthly total to USD 1.07 billion. During the same period, agricultural FX settlements amounted to USD 450 million and USD 1.3 billion, respectively. Average daily purchases in March stand at USD 71 million, still below February’s USD 86 million daily average, despite an acceleration in agricultural FX inflows. However, these purchases were offset by a decline in gold prices (costing over USD 1.1 billion), a reduction in foreign currency reserve requirements, and payments to international organizations (USD 400 million). As a result, gross reserves fell by USD 1.85 billion over the week to USD 45.7 billion, while net reserves remain negative at approximately USD 20 billion, according to IMF methodology.

Exchange Rate Remains Stable. The official exchange rate remained stable over the week, closing at ARS 1,393.4—about 17.6% below the upper band limit. Financial exchange rates edged higher, with the MEP rising 0.2% and the CCL increasing 0.9%, closing at ARS 1,429.7 and ARS 1,482.7, respectively, while the spread widened to 3.7%. Exchange rate stability is supported by subdued demand amid weak economic activity, while supply remains underpinned by agriculture, mining, and dollar-denominated lending. This trend is likely to persist in the near term, supported by seasonal inflows from the harvest, despite a more adverse global environment that has so far had limited impact on local markets. However, looking ahead, declining interest rates may trigger an unwinding of carry trade positions, potentially putting pressure on the exchange rate—particularly in a context where the real effective exchange rate has been appreciating throughout the year.

Greater Liquidity and Bonds on the Rise. Local currency debt posted a positive week amid abundant liquidity conditions. The stock of pesos absorbed by the central bank through repos remains substantial, reflected in overnight repo rates trading below 20% (NAR) and in the continued decline of the Tamar rate, which closed at 26.5% NAR. This level of rates appears increasingly inconsistent with inflation running at around 2.9% m/m, suggesting that if this pace persists, rates may need to adjust upward to prevent a further erosion of real returns. Inflation-linked (CER) bonds were the standout performers, rising 0.9% over the week. The short end of the curve now yields as low as CER -8%, reflecting stronger demand for inflation hedging, while the rest of the curve yields around CER +5%. In this context, breakeven inflation moved higher: the market now prices in 2.6% m/m for the next two months—up from 2.2% the previous week—and cumulative inflation of 28% for 2026. The fixed-rate curve advanced 0.7%, compressing yields to 23.8% NAR (2.0% EMR) at the short end and 27.7% NAR (2.3% EMR) at the long end. Dual bonds fell 0.6%, pressured by the decline in Tamar, and yield Tamar +0.8% in the short segment and Tamar +2.9% in the long end. Meanwhile, dollar-linked bonds dropped 1.8% and yield devaluation +4%, pricing in an implied depreciation of 2% by April, equivalent to an exchange rate of 1,420.

Global Risk Weighs on Sovereigns. The hard-currency fixed income market found no relief during the week, with Argentine sovereign bonds once again under pressure in line with the deterioration in global risk appetite. Following an average decline of 1.2% in local bonds, country risk closed at 623 basis points. The performance of Argentine debt was somewhat better relative to peer countries, which fell 1.4%, although relative performance against the EMBI Latam was less favorable, as the spread widened by 40 bps to 323 bps. In contrast, the comparison with the CCC-rated universe showed no significant differences. The long end of the Global curve, which declined 1.4%, bore the brunt of selling pressure, led by GD41 (−1.8%) and GD35 (−1.7%). The yield curve shows Bonares yielding 8.7% at the short end and 10.9% at the long end, while Global bonds stand at 7.3% and 10.3%, respectively. Heavier pressure on foreign-law bonds narrowed the GD30/AL30 legislative spread from 2.7% to 2.5%. Meanwhile, Bopreal instruments decoupled from sovereigns and posted an average gain of 1.1%, driven by Series 3 (+1.9%) and Series 1-A (+1.3%). The central bank curve currently yields between 2.3% and 8.3%. Provincial bonds weathered the adverse environment with relative resilience, declining 0.6% on average, with Buenos Aires 2037 leading losses at −1.9%. This segment offers yields ranging from 6.1% to 12.6%. Corporate bonds were the top performers of the week, rising 0.2%, with Arcor 2026 and TGS 2031 leading gains at +0.4% each. Yields remain in the 6.0%–9.5% range under foreign law and 4.5%–8.0% in the local market.

Equities Hold Firm. Driven once again by energy stocks and their weight in the index, the Merval outperformed global equity indices, rising 3.1% in local currency and 2.5% in USD (CCL), closing at USD 1,838. Top gainers included YPF (+8.8%), COME (+5.9%), and Edenor (+5.5%). Meanwhile, materials and construction-related names came under pressure, with declines of 13.0% in Transener, 7.0% in IRSA, and 6.6% in TGN. Argentine equities listed on Wall Street posted an average gain of 1.7%, led by Adecoagro (+30.4%), Vista (+11.3%), and YPF (+9.6%), while Bioceres (−29.5%), IRSA (−6.2%), and Mercado Libre (−2.1%) recorded the steepest losses. Month-to-date, the Merval is up 0.4% in USD, although it remains down 7.5% year-to-date.

WEEK AHEAD:

• On Wednesday, the terms of the final Treasury auction of March will be released, in which the government faces maturities of ARS 7.9 trillion from the Boncer TZXM6. The auction will be key to assessing whether the Treasury absorbs part of the system’s excess liquidity, in a context of sharply declining interest rates.
• The January wage index will also be published, providing insight into real wage dynamics at a time when inflation remains sticky.
• On Thursday, the January EMAE will be released, offering the first signals on how economic activity started the year.
• Finally, on Friday, the balance of payments, the international investment position, and external debt data for 4Q25 will be published, providing a more comprehensive view of the external sector.

‍